Staying in the hot seat

By REBEKAH PALMER

It's becoming common to see shareholders of companies in trouble baying for board directors' blood, especially for the head of the head.

Fonterra chairman John Roadley has just resigned, less than a year into a three-year contract, following dismal financial and farm-gate performances.

New Zealand Rugby Football Union chairman Murray McCaw quit after he and fellow board members were found responsible for New Zealand's loss of the right to sub-host next year's Rugby World Cup.

But his departure wasn't enough for provincial rugby unions: replacement Rob Fisher also stepped aside, together with other board members.

No longer is the chairperson of a board a rather mystical and distant figure, says Institute of Directors chief executive David Newman.

In the past, he says, "the work of directors and boards has been a dark science which no one has understood ... a bit like the front row in a forward pack. They're there, but what do they do?"

Board workings are now far more transparent.

But we can do even better, says New Zealand Stock Exchange head Mark Weldon, who has released a plan to change the way companies are run.

His proposal includes minimum standards for directors and separating the role of CEO and chair. Globalisation, increased business complexity, performance reviews and more media and shareholder attention have forced a greater focus on director liabilities, says Newman, "which means they have to get closer to the action and understand more".

While there might once have been a divide between boards and the companies they led, he says, "that big line is becoming illusory".

Chairmen have become more dominant, increasing the clout of the role.

So what does it take to do what looks like an increasingly pressured and apparently unstable perch?

The board chairperson is the strategic leader of a company, says Newman.

And that involves two main responsibilities: to focus on long-term issues and to ensure the board's wishes are carried out.

The Institute of Directors' guidelines say the most essential quality for a chairperson is leadership.

Board heads should have strong enough personalities that they don't get "captured" by others, and yet be open enough to make sure everybody's views are heard, says James Lockie, who is a chairman and on a number of boards, including General Finance and mortgage banking company Cairns Lockie.

"Often people with dominant personalities or forceful views try to take over and it's the chairman's job to try to keep a balance."

The chairperson also manages the vital relationship between the board and the company's chief executive.

If that link is weak - maybe respect is missing - then the company is unlikely to work at its best. Conflict between the management and the board, says Newman, inevitably affects efficient management.

An example of this is the debacle last year after NZ Post chairman Ross Armstrong accused his deputy, Syd Bradley, of leaking sensitive information. In turn, Bradley blamed chief executive Elmar Toime for problems plaguing the state-owned company.

"It's not the board's role to go out there and publicly crucify its executive," Newman says. "It's got to work with them, bring them along, and it's the CEO's role to ensure the wishes of the board are conveyed to the executive. If there's any dysfunction at that level, it ultimately causes significant problems."

A good relationship is a boon. Good boards make for good companies, says Commonwealth Association for Corporate Governance chief executive Geoffrey Bowes, who runs workshop training for chairmen and chairwomen.

"If the chairman's good, the board is good. If the chairman is hopeless, the board is hopeless."

The buck stops at the top, he says, but that does not mean they always go when they should.

Lockie agrees, saying New Zealand chairmen should fall on their swords more often.

He suspects the chair of Fletcher Challenge Forests, Sir Dryden Spring, may be the next to go, following the recent collapse of its $1.4 billion Central North Island Forest deal due to shareholder opposition.

But Lockie says accountability must extend further than just the chairperson.

Newman also sees it as a team game. "The board operates as a collective. They make decisions which one or two directors might not be in agreement with, but when they go out and give the signals to the executive, they have to be seen to be a cohesive body.

"There's no room for dissension outside the board, although of course you would encourage it within the board."

He draws a comparison with Cabinet collective responsibility and says the board and the chief executive are jointly responsible for a company. But he doesn't think the chairperson should be first in the firing line.

"If the performance of a company isn't up to scratch, then the first to go should be the chief executive."

One of the key roles of the board is to appoint a chief executive and another is to disengage them, says Newman. "Boards in New Zealand are starting to understand that, and the average tenure of a CEO is getting less and less. I think boards are accepting responsibility to ensure CEOs deliver."

And board members need to challenge their leader if there are problems, says Newman.

Look at former sharemarket-darling-turned-dog Brierley Investments, he says. "For five or six years they promised to deliver on a strategy, and they never did. It took the board far too long to make the changes that had to be made."

Good chairmen are often born, says Newman, "but most of us have to learn it by observation". Solid training is becoming more common.

When he spoke to the Herald, Geoffrey Bowes had just got back from running a workshop in Kenya, attended by chairmen from Kenya, Zimbabwe and Uganda.

Bowes, a former Institute of Directors director, says New Zealand's directors are far better than in most parts of the world. Part of the reason is, he believes, that training is becoming more common here, especially among the young.

His workshops cover the basics of board, chairperson and management functions.

He recommends that boards have a vision and a charter and carry out regular independent evaluations. Chairmen and chairwomen should also have performance reviews - something becoming more common.

So how do you know when the chairperson is getting it right? Again, says Bowes, just look at the company and its performance. He's reluctant to single out specific leaders as examples, though. New Zealand is so small that everyone in the business knows who rates. "And there's the old saying: if someone only does one term of three years on a board, there must be something wrong."

* The one-day conference Corporate Governance Masterclass 2002, at Auckland's Sky City on September 18, focuses on growing shareholder wealth through good governance. For information, call 0800 800 986.

* Geoffrey Bowes will run an Institute of Directors workshop for chairmen and chairwomen in Wellington on September 30 and October 1. For details, call 0508 446 369.